Answer the following question with a starting point of simultaneous long run and short run macroeconomic equilibrium, with the overall production level in the economy at the natural rate level of real GDP (YNR). This equilibrium may be illustrated in a diagram with the average price level (P) measured on the vertical axis, and real GDP (Y) measured on the horizontal axis. The long run equilibrium is represented by the intersection of the vertical long run aggregrate supply function (LRAS), and the downward sloping aggregate demand function (AD). The short run equilibrium is represented by the intersection of the upward sloping short run aggregate supply function (SRAS), and the downward sloping aggregate demand function (AD). (See the diagram on the left panel.)
Question: If a recession were to occur as a result of an inward shift in the AD function (see the diagram on the right panel), the result is:
A) A decrease in the average price level (P), and an increase in real GDP (Y).
B) An increase in the average price level (P), and an increase in real GDP (Y).
C) An increase in the average price level (P), and a decrease in real GDP (Y).
D) A decrease in the average price level (P), and a decrease in real GDP (Y).
E) No change in the average price level (P), and no change in real GDP (Y).
Answer: D) A decrease in the average price level (P), and a decrease in real GDP (Y).
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The foreign exchange market is the market in which
A) the world's governments collect their tariff revenue. B) goods and services are exchanged between governments. C) the currency of one country is exchanged for the currency of another. D) all international transactions occur. E) currencies are exchanged solely by governments.
Refer to Figure 28-7. Consider the Phillips curves depicted in the graph above. The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds
If the assumptions of the rational expectations school hold true, and the Fed's announcement is credible, the rate of unemployment will be ________ in the short run. A) less than 5.5 percent B) 5.5 percent C) between 5.5 and 7.5 percent D) 7.5 percent